The slew of federal stimulus checks starting immediately after the pandemic ensured that income tax filers continued to get significant tax refunds for the tax year 2020 and 2021 that include the expanded Child Tax Credit stimulus check and the Earned Income Tax Credit (EITC).
The federal stimulus checks dried up in 2022 with the end of the monthly CTC stimulus payments for parents in December 2021. Consequently, filers expecting tax refunds of a bigger amount in 2023 should realize that the payments will be way less for the tax year 2022, payable in the first quarter of 2023.
In the normal course of events, filers get a federal refund when filers have overpaid their yearly taxes or the IRS withheld more than the amount owed to the filers. But this year filers are in for a much lower refund amount as there was not a single stimulus check-in in 2022 and the tax deduction allowed for charitable gifts was also much less.
The annual balance of income tax filers is based on their taxable income that is calculated by deduction the greater of the itemized or standard deduction from the AGI, the adjusted gross income.
The IRS revealed in a statement that refunds in 2023 would be smaller even as they announced the upcoming tax season. They said that income tax filers will not receive any additional stimulus check with a 2023 tax refund as there was no Economic Impact Payment this year after the third Economic Impact Payment.
The Internal Revenue Service also encouraged taxpayers to take incremental steps before the end of 2022 to make filing their income tax returns much easier. Being prepared in advance and taking a preview of all the convenient tools online and changes in tax laws will help income tax filers approach the upcoming income tax season with self-confidence.
The Primary Move Is To Get Together All Tax Records
Income tax filers are in the best position to file accurate income tax returns. This does away with refund and processing delays or receiving any mail from the IRS. The last quarter of the financial year is the best time for income tax filers to gather their tax documentation and get them organized.
This will help them to file their income tax returns accurately and stay away from refund delays and also avoid processing delays that may have occurred in 2022. You will be able to know if they are taxable and how they should be reported.
The Internal Revenue Service has encouraged taxpayers to adopt either a record-keeping system that could be either on paper or electronic. This is to store information related to income, expenses, and taxes payable throughout the financial year. filers should also retain copies of filed income tax returns and other supporting documents for a minimum of three years.
By January, filers should ensure that their bank, employer, and other payers have their correct mailing address and also email address. This will ensure that they receive their annual financial statement on time.
Under normal circumstances, all annual forms start arriving by mail and email or are available on the respective websites after the second week of January. Filers should also painstakingly review every income statement and check them for accuracy. They should also contact every issuer and confirm any information that has to be updated.
All That Is New In Tax Year 2022
The end of the 2022 tax year has taxpayers scrambling to take full advantage of the Tax Withholding Estimator. This unique online tool is a great help to taxpayers as it conveniently helps them determine the right tax amount that was withheld from their paycheck. Other people may have life-changing events such as marriages, the birth or welcoming of a child, a second job, or a divorce. Other taxpayers may need to consider the tax payable estimates due to non-wage employment that could be from unemployment, annuity income, digital assets, or self-employment.
The final quarterly payment scheduled for 2022 become due on January 17. 2023. The Tax Withholding Estimator is a handy aid for wage earners to determine if a need exists to adjust the withholding, submit a fresh W-4 form to employees, or consider extra tax payments to avoid any surprising tax bill once they file their income tax returns.
Even as tax filers gather income tax records, they should keep in mind that almost all income forms are taxable. And in this list are refund interest, unemployment income, and income generated from digital assets and the gig economy.
Taxpayers Should Give A Report Of All Income Including From Stimulus Check
Taxpayers should also give reports on the income they have earned during the tax year and this includes income from working part-time, side hustles, or the sale of goods. The reporting threshold was lowered under ARPA, 2021 for 3rd party networks that work to process the payments of people doing business.
Before the 2022 tax year, Form 1099-K was used for 3rd payment network transactions exclusively in cases of transactions that exceeded 200 in the tax year and also when the aggregate amount of such transactions was over $20,000.
But for the present year, any one transaction that is over $600 can trigger the 1099-K. the lower information reporting threshold and the income summary on Form 1099-K enable the taxpayers to more easily track the amount that they have received.
What is not taxable is money received through 3rd party payment applications sent from relatives and friends that are reimbursements or personal gifts, unlike stimulus checks. And those who receive any 1099-K that reflects income that they did not earn should immediately contact the issuer. This is something that the IRS cannot correct.
Like the Dependent Credit Care, EITC, and the CTC stimulus check, the credit amounts can also change year-on-year. the Interactive Tax Assistant can help tax filers to determine tax credit eligibility. A section of filers may qualify for the 2022 expanded eligibility for the premium tax credit or the Clean Vehicle Credit through the Inflation Reduction Act, 2022.
As filers will not get any extra stimulus checks with their tax refund for 2023, the refunds will be smaller. Further, filers who fail to itemize and claim standard deduction will not be allowed to claim deduction on the charitable contributions.
